What is Venezuela all about?
Venezuela’s economy is largely tied to its oil wealth. By 2014, the value of bolívar and the prosperity of the country’s economy was highly dependent on oil exports.
This wealth once made the country one of the richest in Latin America. However, this wealth was not uniformly distributed and resulted in income inequality. The then government of Mr Hugo Chávez tried to bring in a socialist ideology that redistributed the country’s oil wealth.
His government seized private factories and founded state companies and cooperatives. Although his policies drew support from the impecunious, they also alienated some of the country’s wealthy elites.
The Inflation-al Crisis
His successor, Mr Nicolás Maduro, tried to steer the county toward autocracy and moved to quash all dissenting voices through violence and intimidation. Later, when the global prices of oil dropped, foreign demand for the bolívar to buy Venezuelan oil crashed, the currency’s value fell and as this happened, the cost of imports rose. Venezuela was in a crisis. To combat this, Maduro’s solution was to print more money.
The crisis was augmented by a further fall in oil prices compounded with factors like reduced oil output in the country. This printing of more money raised the money supply, pushing the value of bolívar further down. In 2016, prices soared up and the result was hyperinflation.
The inflation rate reached 274% in 2016, 863% in 2017, 130,060% in 2018, and 282,973% in April 2019. Since 2016, the overall inflation rate has increased to 53,798,500%.
The following table shows some of the Venezuelan rates and prices for the month of March and April 2019.
|Venezuela Prices||April, 2019||March, 2019|
|Consumer Price Index||1268517191.00||948197209.5|
|Core Consumer Prices||594.3||582.3|
|Core Inflation Rate||60.30||60.90|
The following table shows the main components of the CPI (taking December 2007 to be the base period):
|Component||% of CPI|
|Food and non-alcoholic beverages||32.2|
|Restaurants and hotels||8.8|
Things Get Worse:
Apart from the political disturbances, Venezuela’s humanitarian situation is also dire – children dying of malnutrition, health care system collapsing, all have led to a pitiable situation of the country.
The prices have gone so high that it has also escalated starvation, disease and a large number of people leaving the country. More than one-tenth (3.4 million) of the citizens have already escaped to neighbouring countries in search of better living conditions. Besides, this is the worst economic crisis that the Venezuelan economy has ever faced.
All these problems have jolted the roots of the Venezuelan economy leading to severe consequences such as eroding democracy, a chronic shortage of food and medicine, unemployment and a lot more.
A nation whose food consumption is 32.2% of its CPI is now facing an acute shortage of food. Reports suggest that by 2017, almost 75% of the population had lost an average of over 8kg in weight, and more than half did not have the income to meet their basic food needs. Moreover, A UN report estimated in March 2019 that more than 94% of Venezuelans live in poverty and more than 25% need some form of humanitarian assistance.
The GDP of Venezuela for 2018 was $76.458Bn.
The table below shows the GDP growth rate of Venezuela for the previous years:
What was done by countries with the same financial health?
In the past when countries like Hungary, Zimbabwe, Yugoslavia faced similar conditions, the government had to adopt radical stabilisation programmes and a new currency was adopted in all these cases.
Will Venezuela do the same?
Well, that’s a question yet to be answered. Broadly speaking, internal restructuring or external aid are the only two possible ways which can, to some extent, help the humanitarian crisis